Terry White Group (TWG) and Chemmart pharmacy networks have announced a merger which will create one of Australia’s largest pharmacy groups with some 500 stores and $2 billion in turnover.

The merged network will account for nearly 15 per cent of the $15.8 billion industry (according to the latest Ibis World report). It will rival the largest pharmacy chain in Australia, Chemist Warehouse, which has approximately 320 stores and $3 billion in annual sales.

Pharmacies are facing a multitude of new and significant internal and external business threats.

Pharmacy has become a very competitive and complex industry, dominated by large franchise chains launching aggressive advertising campaigns and sparking price wars which are forcing out independent sole trader pharmacists. IBIS World estimates that of the 4041 pharmacy businesses in Australia, only 12 per cent are entirely independent.

Regulatory changes due to come into effect on October 1 are expected to cause the price of generic drugs to fall, dragging the industry’s revenue grown down to 0.7 per cent in 2016 – 2017.

The industry is also threatened by calls for the law to be changed to allow pharmacies to be owned by non-pharmacists, enabling big supermarkets (and overseas mega chains like UK’s Boots) to enter the market.

Consequently the industry is undergoing a period of consolidation, creating pharmacy super powers that can compete with anyone and have regulatory and market influence.

To survive in the current climate there is pressure on pharmacies to continually evolve, diversify and adapt their models to meet new challenges, to stay relevant and differentiate themselves in order to carve out a niche.

Many pharmacies are adopting a broader health focus with the aim of becoming a health care destination, such as by providing weight loss programs, flu vaccinations and blood pressure checks. We are also seeing pharmacies focus on retail, in particular fragrance and cosmetics.

Pharmacy bodies are calling for changes to the law to allow pharmacists to utilise their skills as qualified health professionals to renew and even prescribe certain prescription medication currently reserved to doctors, which would not only alleviate the pressure on general practitioners but would also be more convenient to, and attract more, customers.

The TWG/Chemmart merger is certainly evidence that pharmacy is taking unprecedented action to retain their foothold in the industry.

TWG chief executive Andrew White has said that the merger will enable the merged group to leverage scale and combined capabilities to increase the competitiveness and marketing strength of the pharmacies and to improve front line health service delivery, for the benefit of its pharmacy owners and customers.

The Chemmart business is owned by New Zealand-based medical and pet care firm EBOS, which is dual listed on the Australian and New Zealand stock exchanges. EBOS which will sell its Chemmart business to TWG and provide additional capital in exchange for a 50 per cent stake of the merged entity and will be represented on the board of the merged group by its CEO Patrick Davies.

Chemmart’s current executive director will be the merged company’s chief operating officer. Terry White chief executive Anthony White will continue to run the merged group. The brands will be kept separate under their respective Terry White and Chemmart banners.

The merger proposal will be voted on by 422 shareholders of the privately held TWG and is expected to proceed in October if approved.

Mr White has indicated that the group is open to other merger and acquisition deals.  While the immediate focus is integration of the entities, an IPO may be on the horizon within the next 18 months.